The U.S. stock market switched direction toward the closing bell to finish mostly lower Wednesday as worries over U.S.-China trade talks lingered. The dramatic reversal extended losses by the S&P 500 and Nasdaq for a third straight session.

How did the benchmark indexes fare?

The Dow Jones Industrial Average
DJIA, +0.37%
bucked the trend by edging up 2.24 points to 25,967.33. The S&P 500
SPX, +0.14%
fell 4.63 points, or 0.2%, to 2,879.42, while the Nasdaq Composite Index
COMP, +0.11%
dropped 20.44 points, or 0.3%, to 7,943.32.

On Tuesday, the Dow tumbled 1.8% to 25,965.09, suffering its largest percentage decline since Jan. 3, while the S&P 500 dropped 1.7%, to 2,884.05. The Nasdaq fell 2%, to 7,963.76. The S&P 500 and Nasdaq saw their biggest daily declines since March 22, according to FactSet data.

What drove the market?

China-U.S. tariff tensions have buffeted assets perceived as risky, such as equities, and the belligerent tone from the White House caught many investors by surprise after having anticipated a tidy pact to the protracted talks coming to fruition soon.

On Wednesday, a notice in the Federal Register formally laid the groundwork to raise tariffs on $200 billion of Chinese imports to 25% from 10% early Friday, following through on remarks Monday by U.S. Trade Representative Robert Lighthizer regarding such a move. The prospect of higher tariffs was first raised Sunday by President Donald Trump, rattling investors who had anticipated better progress toward a near-term resolution.

Trump once again weighed in on the negotiations via Twitter on Wednesday, saying that the Chinese are now “coming to the U.S. to make a deal,” implying they had previously been slow-walking the negotiations in the hope that Trump would be voted out of office in 2020.

The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come....

....Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers...great for U.S., not good for China!

Indeed, Beijing has said top trade envoys, including Vice Premier Liu He, will head to Washington on Thursday to resume negotiations.

China’s diplomatic contingent had attempted to revamp a nearly 150-page draft trade agreement, as they were reluctant to agree to signing new trade terms into law, raising the ire of U.S. negotiators, according to Reuters.

Adding to policy uncertainty, Iran said it may cease compliance with portions of a 2015 nuclear deal it signed with the U.S., Britain, France, Germany, China and Russia. Iranian President Hassan Rouhani said that it would begin stockpiling heavy water and low-enriched uranium unless non-U.S. signatories take steps to shield the Iranian economy from Trump-administration sanctions that have been crippling its economy.

What were strategists saying?

“Some consolidation was to be expected, given the phenomenal start of the year,” for markets, said Eric Wiegand, senior portfolio manager at U.S. Bank, adding that the recent U.S.-China trade drama provides an opportunity for taking profits.

He also warned investors the trade dispute is “a phenomenon where you can’t get an edge, because you’re just one tweet away from having your previous posture undermined.”

“Traders are in no mood to take a stand right now as the uncertainties regarding China and Iran take center stage,” wrote Bespoke Investment Group’s Paul Hickey in a note.

“The flight to safety has provided a big boost for Treasurys, re-flattening the yield curve closer to the inversion zone,” he added. “And to think, just three trading days ago, the S&P 500 was flirting with a record high close!”

Which stocks were in focus?

Lyft Inc.
LYFT, -1.74%
shares slid 11% after the ride-hailing company late Tuesday reported quarterly earnings for the first time since its initial public offering in March. The company reported first-quarter losses that were wider than expected, but revenue that topped expectations.

Shares of Coty Inc.
COTY, -0.23%
tumbled 5.5% after the company reported a narrower loss for the fiscal third quarter, ended March 31, than the previous three months, but revenue that fell 10.4%, below consensus expectations.

Shares of Chesapeake Energy Corp.
CHK, -2.43%
rose 4%, reversing premarket losses, after the oil and natural gas company reported a wider first-quarter loss and revenue that fell short of expectations. On the positive side, the company beat forecasts for earnings before interest, taxes, depreciation and amortization (Ebitda), as production and prices were above projections.

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